This is one of Bitcoins biggest questions right now, what is a tainted coin? It seems that it already are some tainted coins out there that for example Mt.Gox is not allowing to be traded with at their exchange, how does one know if they have some tainted coins in their wallet? And also who dictates if a coin is tainted or not?

This community should have a very clear answer to this questions, no one serious will invest in this Economy in the long run without a clarification and Bitcoin will just attract small players and hackers.

If someone is giving me fiat money, I know that I can spend that money as easliy as I got it. The same thing should be with Bitcoin, so how are we going to handle with this issue?

The same thing should be with Bitcoin, so how are going to handle this issue?

Personally I don't see that "tainted coin tracking" should have anything to do with Bitcoin itself - policing is a job for police (and/or other government authorities) and is very much dependent upon laws that differ a lot between different jurisdictions.

A bitcoin should be fungible otherwise inevitably everyone's wallets will end up with "tainted" coins that they may have difficulty in using. New users have enough to cope with already without them also having to learn that "bitcoins are all equal, however, some bitcoins are not as equal as others".

BTW this issue has been discussed at length on this forum before (with a little searching you will discover a number of threads).

This community should have a very clear answer to this questions, no one serious will invest in this Economy in the long run without a clarification and Bitcoin will just attract small players and hackers.

There is no official policy regarding "tainted" coins. Every single user of bitcoins is entitled to refuse to accept bitcoins as a payment for whatever reason, including the reason that he or she considers the coins you have to be tainted. Someone may refuse to accept your coins, and that is their right to do so.What is relevant to your trade in bitcoins is what the policy of the exchange you plan to use is. If you plan on using Mt. Gox, ask them what their policy is on tainted coins. Not satisfied with this policy? Choose another exchange.

The concept of tainted coins seems to me to be destined to fail. Take the recent Bitcoinica theft as an example. A number of coins were sent to the "Bitcoin faucet" address. Owned and operated by lead Bitcoin developer Gavin Andresen. What now? Should we not accept Gavin's money, and all other addresses that receive money from the faucet?

If an exchange chooses a restrictive policy on tainted coins it simply means I will go exchange my coins elsewhere. I am not a thief, and I will not accept being treated as one. This dynamic will dig the grave for the concept of tainted coins I believe.

They say that 90% of British bank notes have traces of cocaine on them. It would be impossible to do business at all, without notes which have been involved in illegal activity at some point in the past (although not while in my possession) .

If tainting coins should be done, it should in the end be decided by the police or similar and only apply to that country.Since it must also be both difficult and illegal to abuse the system.

One problem would otherwise be that it would allow someone to post anonymously under someone elses identity and claim another owners coins to be tainted.That would open up for extortion by locking that owner out from using his/her coins on MtGox.

If a government would like to control Bitcoin they can force shops to only accept "clean" coins.By creating a penalty for accepting tainted coins and another penalty to use anonymous adresses.

When it comes to tainting, all coins would sooner or later be tainted, but its a matter of how much tainted a coin is and from what and when.

If a coin is 87% tainted from last week or 0.0001% from last year are two completly different stories.

A coin tainted for being a pretty girl kidnapping ransome.

Very big deal for every owner of Bitcoins Since that would turn the publicopinion against every one who use Bitcoin unless Bitcoin was allready something everyone used.

The price of Bitcoins would tumble.

In fact every time a big theft of Bitcoins happens, the value of Bitcoins is indirectly affected negativly.Because in the public mind it shows them that Bitcoin is not a safe way to store value and shops will not want to get hacked.

If a government requires coins to be somewhat clean , it will be in the interest of most people to not accept bitcoins from robbery, theft or kidnapping etc.Most people will like a society in which crimes do not pay.

Ofcourse, tainting or no tainting. Anyone can still accept tainted coins but the day we have bitcoin kidnappings it would be in their interest to know how much those coins are tainted and from what and with what certainity that tainting was real.

For example it would be easy for the FBI to publish a list of coins they considered tainted.And people in other countries would be free to look at it or ignore it.

Sorry if i've got the wrong idea, does this mean that it is possible to say coin X was involved in illegal transaction Y?Who says its tainted? how do you tell if its tainted?

Of course it's possible, since all transactions are public. It's possible to trace a particular coin's entire transaction history all the way back to its generation and look for transactions known to be illegal. It's also possible to go the other way, and look at a particular illegal transaction and find out where all those coins are now.

The real question is what should be done about tainted coins. I personally think nothing should be done about it, except investigate illegal transactions as soon as possible after they are discovered. Preventing people from using tainted coins would harm innocent people more than it would harm criminals, since criminals are likely to launder their coins (putting them in the hands of legitimate users) before anyone even realises the coins are tainted.

I, for one, am perfectly willing to buy/accept tainted coins, in the same way that I don't care that at least half of the notes in my wallet probably have traces of various drugs on them, simply because I have no way of knowing whether the person paying me is really involved in illegal activity, or just happened to receive money from someone who was. I don't want people's money to be made worthless just because they may be a criminal. That's not how a civilised society is supposed to work, and goes against everything that Bitcoin stands for.

It seems that it already are some tainted coins out there that for example Mt.Gox is not allowing to be traded with at their exchange,

Do you have a cite for this? Because the last time I asked if this was the case, Mt.Gox said no. I pointed out the practical problems with such a policy and they denied they had any such policy.

And I don't see how they could possibly have such a policy. For example, if they retain the right to claim some coins are tainted and not as good as others, presumably they have to extend to others that same right. If I send them Bitcoins I don't consider tainted and they reject them, what do they do? Send me those Bitcoins back? What if I now consider them tainted? (Which is, IMO, justifiable. Since Mt.Gox has now declared them tainted.)

If Bitcoins are not fungible, lots of things start to break.

I am an employee of Ripple.1Joe1Katzci1rFcsr9HH7SLuHVnDy2aihZ BM-NBM3FRExVJSJJamV9ccgyWvQfratUHgN

*Sigh...*The whole concept of taintedness is ridiculous and based on a fundamental misunderstanding of how Bitcoin works.

Unknown Entity A and Unknown Entity B do a transaction.

Bitcoins that were in A's wallet get sent to B's wallet.

With the exception of situations where multi-signature Bitcoin escrow is used, B is the undeniable new owner of the coins, no matter what.

If something goes wrong and A claims that B stole the coins, there is no way to prove that A isn't lying.

Sure, A can go to a government-funded police force in Country F to complain, but then it becomes a ridiculous who-dunnit that can always be gamed if A is a sufficiently clever con artist.

If people want to avoid the problem of theft, use MAD (mutually assured destruction) or some other type of multi-signature escrow feature that is built into the Bitcoin protocol for this very reason. Here's a couple of other questions to ponder over:

Entities A and B are located in different countries, which have different laws. A transaction occurs and bitcoins are sent. However, it turns out that the product/service/theft/whatever is totally illegal in one of the countries, and totally legal in the other country. In case of a dispute, what happens then? War?

If coins are transacted multiple times after an unprovable accusation of theft, what is the correct way -- if any -- to undo the damage?

Of course the whole idea is idiotic in a practical sense for the users. But for governments it will be a key issue to kill bitcoin.They will require some form of regulation, if not at user base, it will be at exchange base.Forcing them to taint or quarantine coins will be one of the first demands. If they don't abide by those rules, they will be shut down. I hope it won't come to that, but currently i view this as inevitable.

Of course the whole idea is idiotic in a practical sense for the users. But for governments it will be a key issue to kill bitcoin....

I'm moderately concerned about that too. Fortunately, Bitcoin is not a US thing, or even an EU thing, it's international. Several governments tried and failed to oppress the Internet with ACTA. To me this indicates that the public at large is at least "catching on", and are refusing to consent to oppressive nonsense. Maybe I'm just lucky to be in a fairly liberal country right now, but I see a pretty bright future for Bitcoin, despite whatever the US might try.

By now, the bureaucrats should start getting worried about how they're going to get paid in the next few months or years.

If someone is giving me fiat money, I know that I can spend that money as easliy as I got it. The same thing should be with Bitcoin, so how are we going to handle with this issue?

Not necessarily... If someone gave you a pile of fiat that was splattered with some bright colored dye or paint, such as what happens when a bank robber flees the scene of the crime and opens their bag of ill-gotten bills only to find an exploding dye canister going off in their face and all over the bills, would you really expect a bank or merchant to accept those "tainted" bills? This is the fiat equivalent to "tainted" Bitcoin.

I haven't personally decided if I support the idea of "tainting" bitcoin yet, but this would be an example of the real-world equivalent.

In fact every time a big theft of Bitcoins happens, the value of Bitcoins is indirectly affected negativly.Because in the public mind it shows them that Bitcoin is not a safe way to store value and shops will not want to get hacked.

I disagree... It actually demonstrates that Bitcoin is a very good store of value, as even the value cannot be taken away from the thief; the value remains with the coins.

If someone is giving me fiat money, I know that I can spend that money as easliy as I got it. The same thing should be with Bitcoin, so how are we going to handle with this issue?

This is the fiat equivalent to "tainted" Bitcoin.

There are at least two issues in comparing the two:

Tainting of physical paper money is obvious. It can be easily verified and no one would accept a red dollar bill. Thus, tainted paper money bills stop being money in a transparent and easily verifiable manner

bitcoins aren't separate units like dollar bills. They get mixed with other coins in varying proportions. It would be the equivalent of paying you with a stolen 100 dollar bill, which you deposit in the bank, and when you revisit the bank to withdraw your savings you find out your entire savings of $10,000 is now partially tainted because of this single bill

In any case this is what is great with a free market. People can choose to do what they want based on what they think is preferable. Hopefully regulation will be futile.

If someone is giving me fiat money, I know that I can spend that money as easliy as I got it. The same thing should be with Bitcoin, so how are we going to handle with this issue?

Not necessarily... If someone gave you a pile of fiat that was splattered with some bright colored dye or paint, such as what happens when a bank robber flees the scene of the crime and opens their bag of ill-gotten bills only to find an exploding dye canister going off in their face and all over the bills, would you really expect a bank or merchant to accept those "tainted" bills? This is the fiat equivalent to "tainted" Bitcoin.

I haven't personally decided if I support the idea of "tainting" bitcoin yet, but this would be an example of the real-world equivalent.

Isn't this the MAD (mutually assured destruction) escrow thing again? A robber breaks into a bank, only to discover that there are no piles of cash lying around on the floor (unlike a certain web service that got cracked recently...), and that the money is locked away inside an indestructible vault.

In the end, the robber manages to take the entire vault with him. Upon hearing about this, the bank manager gets really pissed off and has the key melted down, thus making the stolen cash inaccessible forever. And everybody lives happily ever after.

If someone is giving me fiat money, I know that I can spend that money as easliy as I got it. The same thing should be with Bitcoin, so how are we going to handle with this issue?

Not necessarily... If someone gave you a pile of fiat that was splattered with some bright colored dye or paint, such as what happens when a bank robber flees the scene of the crime and opens their bag of ill-gotten bills only to find an exploding dye canister going off in their face and all over the bills, would you really expect a bank or merchant to accept those "tainted" bills? This is the fiat equivalent to "tainted" Bitcoin.

I haven't personally decided if I support the idea of "tainting" bitcoin yet, but this would be an example of the real-world equivalent.

I have travelled to over 40 countries in my life and I have exchanged fiat curenncy to goods or another currency for probalby (guessing here) more than 10 000 times, everytime this transactions has gone smoothly, maybe I have been a lucky guy, buy I think we all have similar experinces with fiat.